While the events that have unfolded over the past year have required some outside-the-box theorizing by mainstream macroeconomists, the econo-mists of the Austrian school can offer a straightforward, fill-in-the-blanks explanation by drawing on the theory first articulated by Ludwig von Mises and then developed by Friedrich A. Hayek.

Keynesian theory implies an inherent instability in market economies. Thus the theory cannot possibly explain how a healthy market economy functions--how the market process allows one kind of activity to be traded off against the other.

Some readers of the Wall Street Journal might have been led to believe that Alan Greenspan had somehow followed Milton Friedman's monetary rule. We now see, though, that there was no well-grounded rule; there was no standard.